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The Bankruptcy StrategistFeaturesBankruptcyLitigation

Fifth Circuit: Pre-petition Payout of Insurance Proceeds Should Be Classified As a 'Transfer of An Interest'

By Francis J. Lawall and Brenden S. Dahrouge
December 01, 2023

Section 547 of the Bankruptcy Code provides for the potential recovery of transfers of a debtor's property occurring within 90 days of bankruptcy. Typically, preference actions involve payments to vendors who previously did business with the debtor on credit. However, vendors are not the only ones who can be tangled up in preference litigation. In a recent case before the U.S. Court of Appeals for the Fifth Circuit, the question of whether a payout of insurance proceeds to a tort claimant, made pre-petition pursuant to Texas state insurance law, should be classified as a "transfer of an interest of the debtor in property" under 11 U.S.C. Section 547. See, Law Office of Rogelio Solis v. Curtis, No. 23-40125, 2023 U.S. App. LEXIS 26621, at *2 (5th Cir. Oct. 6, 2023). In upholding the bankruptcy court's determination that the payment of insurance proceeds could be such a transfer, the Fifth Circuit underscored the complex interplay between state law, bankruptcy law and the rights of creditors in bankruptcy proceedings.

On Dec. 19, 2020, a tractor-trailer owned by Josiah's Trucking LLC (Josiah's Trucking) collided with another vehicle, causing the death of two individuals. At that time, Josiah's Trucking held insurance coverage with Brooklyn Specialty Insurance Co. RRG, Inc. which carried a policy limit of $1,000,000. The mother of one of the victims, Ana Gomez, and the family of the other, the Tellez family, each sought legal representation and initiated insurance claims. The Law Firm of Rogelio Solis, PLLC (the Solis Firm) represented Ana Gomez, while the Tellez family contacted Escobar & Cardenas to represent their interests.

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